Analyst Takes Energy Analytics

Analyst takes: Top energy shifts to be aware of in August

byChris Griggs

As August commences, it’s the perfect time to examine last month’s energy landscape. The Enverus Intelligence® | Research (EIR) team has studied the essential trends and developments, offering perceptive analyst opinions that can support sound business decision-making. By remaining current, you’ll be poised to benefit from prospective energy opportunities in 2023. Explore further to gain the latest insights and remain in tune with the energy market’s heartbeat.

PLUG pressures White House on 45V PTC provisions (July 26, 2023)

EIR’s modeling supports PLUG’s recent recommendation to maintain flexible electricity sourcing for 45V PTC eligibility, thereby ensuring lower production costs and a thriving green hydrogen economy. PEM and alkaline projects forced to employ hourly electricity matching to an average American wind farm would realize $1.30/kg and $0.90/kg higher LCOHs, according to EIR’s estimates, compared to projects using grid power with renewable energy credits. Under hourly time-matching conditions, a 50 MW PEM project claiming the 45V PTC would flip from a $28 MM NPV to negative returns (30-year project life, 10% discount rate) and the equivalent ALK project NPV would drop by 91% to $5 million.

Declining private M&A opportunities could finally trigger corporate deals (July 25, 2023)

Private company acquisitions by public E&Ps led the way again in 2Q23 upstream M&A with most deals focused on securing inventory in the Permian Basin. Valuations continue to escalate, averaging $1.4 million per location in the Delaware and $2.0 million in the Midland, and buyers have been more willing to give serious consideration to positions outside the core of those basins. While EIR calculates there are still more than 10,000 net locations in the Permian in the hands of private companies, less than 20% of those are held by likely sellers. With decreasing opportunities and increasing prices in the private market, buyers should more seriously consider public company M&A as an alternative, in EIR’s view. Equity markets are currently ascribing little upside value by EIR’s calculation to companies like CPE and SM, which have inventory comparable to the latest private sales. Meanwhile companies like MTDR and PR have inventory of higher quality than available private assets, albeit at an implied cost of $4 million per location, assuming a modest premium. CVX’s $7.6 billion buy of PDCE in 2Q23 shows at least some sellers will take a moderate premium, at least in an all-equity deal.

CVX announces DLE interest (July 24, 2023)

Lithium is critical to manufacturing the batteries needed for a healthy energy transition. CVX announced Monday its intention to consider lithium production from brine, and EIR expects a growing line of upstream operators to establish such operations or partner with direct lithium extraction (DLE) companies. Many E&Ps already produce brine with a sufficient lithium concentration for DLE opportunities. In a recent report on Alberta’s DLE potential, EIR estimates a standardized 20,000 tonne LCE/year facility could provide an additional revenue stream of ~$800 million per year, assuming a spot price of $40,000/tonne, presenting a clear and compelling path for energy transition investment that aligns with existing upstream business models and skill sets.

You can read more about the circular nature of critical minerals here.

Emissions under scrutiny as CPE fined $1.3 million (July 24, 2023)

It will soon no longer be a novelty for the EPA to slap fines on operators for excess emissions, in EIR’s opinion, as aerial flyovers increase and monitoring technology improves. CPE was recently fined $1.3 million after a helicopter equipped with an infrared camera detected an excess amount of smog-causing pollution, or volatile organic compounds, leaking from equipment at the company’s facilities in the West Texas Permian Basin. While not a huge fine, it highlights the ongoing trend of observations in the sky affecting operations on the ground, particularly as regulations tighten and the EPA’s super-emitter response program starts to take shape under Quad O.

You can read more about the impact of emission reduction regulations in Canada here.

Fervo energy makes a leap towards the “holy grail” of geothermal (July 18, 2023)

Fervo Energy’s successful well test at Project Red in Nevada marks a significant milestone in the advancement of enhanced geothermal systems (EGS), a technology that could revolutionize the geothermal industry. However, it’s crucial to consider that the 30-day well test may not fully capture the long-term challenges associated with EGS, such as fluid loss and preferential flow paths resulting in premature reservoir heat decline. Despite this, Fervo’s achievement is a major stride towards the “holy grail” of geothermal energy, which could provide the baseload power anywhere, necessary to balance an increasingly intermittent renewable grid. This is particularly relevant considering EIR’s modelling of NYISO’s future energy mix, which highlighted the need for an overbuild of 2x and 3.5x for a renewable grid reliant solely on wind and solar respectively. Furthermore, the secondary heat generated by these systems could be utilized for residential, commercial, industrial and agricultural applications, tapping into a market that currently comprises 40% of North America’s energy demand and represents a ~$100B/year industry.

XOM buys DEN to accelerate low carbon business (July 14, 2023)

In a huge deal for XOM and its Low Carbon Solutions business, the $4.9B acquisition of DEN adds 1,300 miles of operated CO2 pipeline to XOM’s previous 200-mile network, and they will now own over a quarter of all in-service CO2 pipelines in the U.S. The deal expedites XOM’s CCUS operations, avoiding the cost, time and public pushback of building new CO2 pipelines, as experienced by the proposed Summit and Navigator CO2 pipelines in the Midwest.

DEN’s major operational assets reside in the Gulf Coast and Rocky Mountain regions. The Gulf Coast operations bring nearly 900 miles of operated CO2 pipeline in Texas, Louisiana and Mississippi and add 25,800 boe/d of EOR-derived production. These pipelines are centered around dozens of active and announced CCUS projects, many still looking to partner with a midstream operator. Reported capacity for the Green pipeline is 16 mtpa, with current throughput at only 4 mtpa. Additionally, there are 41 mtpa of CO2 emissions within 5 miles of this Gulf Coast system, with 25 mtpa having a capture breakeven below $50/tonne. World-class reservoirs for CO2 storage are present over much of the Gulf Coast region, averaging storage capacity of 19 Mt/section and injection rates as high as 2.6 Mt/well/year. Great news as 9 of DEN’s 10 announced storage projects are in the area.

The Rocky Mountain asset brings the remaining carbon storage site, 21,300 boe/d of EOR production and almost 400 miles of additional CO2 pipeline. XOM adds 46 miles of pipeline infrastructure to its 160-mile Shute Creek CO2 pipeline in Wyoming via the DEN Beavercreek system. Northeast of this operation, XOM will also absorb 340 miles of pipe between the Greencore and CCA in-service CO2 pipeline systems, adding Cedar Creek Anticline EOR production to their portfolio. Within a 30-mile buffer of the Rocky Mountain pipeline system, XOM is increasing their producing well count from 200 to over 1200 wells, while adding over 600 DEN injector wells.

U.S. shale oil | Density driving steepening declines (July 14, 2023)

With U.S. crude oil production growth showing signs of slowing down over the past few years and the increasingly consensus view that peak U.S. oil growth is on the horizon much has been made about productivity degradation, especially in the Permian. EIR’s latest research has found that the production profile for new wells drilled in the Permian has steepened every year since 2014 which has led to a material impact on oil EUR in the basin. EIR expects the steepening of production profiles in the Permian to continue as the basin gets more densely developed which will challenge the ability of U.S. oil supply to grow over 14 MMbbl/d over the next decade.

Brace yourself, $100 crude might be on the horizon! (July 10, 2023)

This policy is a wild ride! They commit to selling barrels to lower gasoline prices around an election, only to buy them back later. It’s a bit confusing, especially with the SPR levels currently at historic lows. The announced buyback is a fraction of what was sold (6 out of ~250 MMbbls) and is symbolic of the monumental challenge of building back the SPR to pre-Russian invasion levels, especially since inventories are starting to draw, OPEC keeps cutting and global demand is at all-time highs. Brace yourself, $100 crude might be on the horizon!

Calling bottom on Henry (July 6, 2023)

Prices work. This past April, Henry Hub dipped below $2.00/MMBtu, two months later gas-fired generation and gas producers have responded. Sloppy gas balances are tightening up. Gas markets no longer fear record end of season storage levels. From here, EIR believes North American gas markets are stuck in cheap-gas supply purgatory, waiting for new LNG gates to open and for such gas plays to exhaust themselves. Only then can Henry reach sustainable price levels that are higher than today.

$100/bbl clock is ticking (July 6, 2023)

Other forecasters have downgraded their oil price call, but EIR has not. Instead, EIR has put an end of August expiry date to EIR’s bullish oil call – subject to data driven evidence of consistent stock draws, OPEC discipline and improving economic momentum. No knee jerk reactions here. Why is EIR being a stubborn bull? Oil demand hit an all-time high of 101.5 MMbbl/d in Q2 despite COVID-like sentiment. Imagine what oil demand will be should sentiment improve and what Brent prices are when OPEC holds firm? EIR’s answer is up.

Here at Enverus Intelligence® | Research (EIR), we recognize the significance of maintaining a competitive edge in the fast-paced energy sector for well-informed business decisions. For keeping you updated on the newest shifts, we encourage you to connect with us on LinkedIn. Here, you will unearth invaluable perceptions on the energy scenario for August and the upcoming months. Rely on EIR for the insights you require to steer through the constantly advancing energy landscape.

*About Enverus Intelligence®| Research

Enverus Intelligence® | Research, Inc. (EIR) is a subsidiary of Enverus that publishes energy-sector research focused on the oil, natural gas, power and renewable industries. EIR publishes reports including asset and company valuations, resource assessments, technical evaluations, and macro-economic forecasts and helps make intelligent connections for energy industry participants, service companies, and capital providers worldwide. EIR is registered with the U.S. Securities and Exchange Commission as a foreign investment adviser. See additional disclosures here.

Chris Griggs

Chris Griggs

Chris Griggs is the product marketing manager for Enverus Intelligence® | Research (EIR) and Trading & Risk at Enverus, where he leads the development and communication of the value these products provide various industries, including oilfield services, investment funds, wealth management departments, banks, E&P oil and gas departments, and midstream operators. Chris helps provide customers across the energy ecosystem with the intelligent connections and actionable insights that allow them to uncover new opportunities and thrive. 

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